What is Utilization?

What is Utilization?
Utilization is a metric used by professional service companies to represent the productivity achieved by an employee (typically) or a team for a given period. Productivity is most often based on Billing. The Utilization rate is expressed as a percentage. An employee who achieves 80% utilization is significantly more productive than one who achieves 70%.
Knowing what the utilization is across an organisation is the key step towards identifying ways to improve productivity, the problem is that there is no generally accepted standard algorithm to calculate it.
This arose in discussing this with one of our clients concerning how it is calculated in our Software as a Service time tracking solution (1timetracking.com). As a result, we now offer our users a choice of algorithm to calculate this, as documented below.

This raises some debating points, such as:
Should sales-related activities be considered productive alongside billable activities?
Should Employees be given targets for Utilization and should these be rewarded?
Which of the two methods below do you prefer – or is there a better way?
Calculating Utilization for a workweek
George Hancock works from 9:00 to 5:30 with an hour for breaks, that is 7.5 working hours a day Monday to Thursday. On Fridays, he works 5 hours. So, in total, his standard expected working hours per week is 35.
In the given week George spent 38 hours as follows:
Unbillable time on Administration: 6 hours
Unbillable time for a client: 4 hours
Billable hours for clients: 28 hours
In this case, the Utilization is:
1) Expected Hours basis:
Billable Hours (28) x 100
——————————— = 80%
Expected Hours (35)
2) Worked Hours basis:
Billable Hours (28) x 100
——————————— = 73.68%
Worked Hours (38)